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Record number of retail insolvencies in first quarter of 2019

Fears over the continuing crisis of high street stores in Scotland is evident after the retail sector experienced a record number of failures in the first quarter of the year.

New research from the Insolvency Service found 28 Scottish retailers filed for insolvency in the first three months of 2019. Having collated data since 2007, this is the highest figure recorded, with the third quarter of 2012 previously being the worst number of retailers going bust at 27.

While shop owners are facing the soaring costs in business rates, wages and utilities, customers are being drawn away from adding to retailers’ footfall and towards the endless shopping services now available online.

A survey by Local Data Company (LD) revealed 265 stores were closed in 2018 across eight Scottish towns and cities: Aberdeen, Ayr, Dundee, Edinburgh, Glasgow, Falkirk, Paisley and Perth. With only 146 stores opening in the same period, this was a net change of minus 119 on the high street.

With high street retailers struggling to compete with online shopping, several retailers are turning to company voluntary arrangements (CVAs) to scale back their physical presence and minimise rent bills.

At the end of April, the UK’s biggest department store chain Debenhams announced its plans to close 22 stores – one of which is located in Scotland – putting 1,200 jobs at risk. Debenhams was put through a pre-pack administration that wiped out the investment of shareholders, including Mike Ashely, the founder of Sports Direct.

For the 26 weeks to March, sales in the Debenhams stores fell 7.4 per cent. Its new owners, who are a consortium of banks and hedge funds, launched the major store-closure programme via a CVA. The CVA will allow them to renegotiate rents at the remaining stores across the UK. It has been said that 39 stores will stick to their current rental rates for the duration of their leases while the company aims to secure rental reductions of between 25 and 50 per cent for the remaining stores.

The announcement from Debenhams is just the tip of the iceberg. Last year saw House of Fraser closing stores after being bought out of administration, while Marks and Spencer is currently in the process of shutting 100 stores by next year.

The number of vacant retail units in Scotland is higher than the UK average, with recent economic figures suggesting consumer spending has slowed over the past two years. Named brands such as Carpetright, Homebase and New Look opted for CVAs, while companies like Fabb Sofas, Maplin and Toys R Us ended up in administration.

However, according to recent research from Savills, the number of empty retail units that were let out in Scotland last year was 82; eight per cent up on the long-term average. These vacant units were snatched up by chains such as Aldi and Lidl, with Homestore & More securing stores at Craigleith Retail Park in Edinburgh and Mavor Avenue in East Kilbride.

Mike Spens, Director of the out-of-town retail team at Savills in Scotland, concluded:

“Corporate failures in the retail sector in the last 12-18 months have released space onto the out of town retail market and allowed for a greater churn. This has created an opportunity for brands such as Home Bargains and the discount food retailers to expand across Scotland and for new entrants to secure representation.”

Despite this, accountancy firm, French Duncan, believe the pressures on the retail sector could result in 2019 being a record year for retail insolvencies in Scotland.

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